1)What is the fair value for a two year

American put option with a strike price of

$75 over a stock which is trading at $76.15

and has a volatility of 27% when the risk free

rate is 0.75% using the two step binomial

tree?

What is the delta of this option?

What is the probability of a down movement

in this stock?

2)What is the fair value for a six month

European call option with a strike price of

$35 over a stock which is trading at $35.15

and has a volatility of 38% when the risk

free rate is 0.85% using the two step

binomial tree?

What is the delta of this option?

What is the probability of an up movement

in this stock?

3)Determine the price of a EUROPEAN put option on a stock

that is currently priced at $50. Each year there are only two

outcomes for this stock, either:

A 15% move up, or

A 15% move down

After the first year the stock pays a dividend of $2 and

after the second year the stock is expected to pay a

dividend of $2.10

How much would you pay for a two year European put

option on this stock with a strike price of $52 if the risk

free rate was 2.2%?

4)Determine the price of an AMERICAN put option on a stock

that is currently priced at $48.50 which has a volatility of

45%pa. After the first year the stock pays a dividend of $2

and after the second year the stock is expected to pay a

dividend of $2.10. How much would you pay for a two year

American put option on this stock with a strike price of $52

if the risk free rate was 2.2%? And what is your delta?

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